Obama’s Expansion Is Finally Paying Off

There’s no debate that the tough economic times of the last decade have helped frame the 2016 elections. In fact, many Americans are so accustomed to seeing the world through their experience of tough times, that it’s hard to recognize when conditions have changed.

Yet, here’s one sign that times are different: American businesses have created almost 9.2 million net new jobs since January 2013, recalling the job creation rates of the 1980s and 1990s. More important, our analysis of the latest Census Bureau data shows that over the three year period from 2013 through 2015, the incomes of most American households grew again, and at rates that matched or exceeded the average for the 1980s and 1990s.

Last month, the Census Bureau reported that the aggregate median income for all U.S. households grew 5.2 percent in 2015, the first such increase since 2007. But as regular readers of this blog know, we apply a statistical approach that digs much deeper into the data. This approach allows us to capture the income experience of typical households of various kinds, by tracking their incomes as they age.

To see if and when economic conditions did truly change, we started by tracking the income path of millennial households, headed by people ages 25 to 29 in 2009, from 2009 to 2015. Over those same years, we also tracked the income path of Generation X households, headed by those ages 35 to 39 in 2009; and the income path of late boomer households headed by those ages 45 to 49 in 2009.

This analysis found, as expected, that times were tough for most Americans from 2009 through 2012. For example, the median income of the Gen X households was flat over those years, and the late boomer households absorbed income losses averaging 1.1 percent per year. The only households with rising incomes from 2009 to 2012 were the millennials, and their gains were a fraction of those achieved by households of comparable ages in the 1980s and 1990s. (Table 1, below)

Our analysis also showed that most people’s income paths shifted starting in 2013. Compared to the preceding three years, the income gains by the Gen X households went from zero to 2.9 percent per year; and the late boomer households, whose median income fell 1.1 percent per year from 2009 to 2012, saw gains of 1.4 percent per year from 2013 through 2015. Finally, the median income of the millennial households jumped from 2.7 percent per year to 4.6 percent per year. Also, it’s worth noting that the largest income gains for all three age cohorts came in 2015.

Table 1. Average Annual Household Income Gains by Age Cohort,
As They Aged from 2009 to 2015

This analysis also shows that most Americans, finally, are better off than when President Obama took office. The median income of millennial households, in 2015 dollars, rose from $50,875 in 2009 to $63,010 in 2015, as they aged from 25 to 29 years-old, to 30 to 35. Similarly, the median income of Generation X household who were 35 to 39 in 2009 grew from $66,287 in 2009 to $72,028 in 2015. Even the late boomers who were 45 to 49 in 2009 managed small gains, edging up from $70,706 in 2009 to $71,300 in 2015.

We can also compare this record with other recent presidents, using my analysis published by the Brookings Institution last year. In that report, I tracked the income progress by comparable age cohorts during the presidencies of Ronald Reagan, George H.W. Bush, Bill Clinton, and George W. Bush — that is, gains in median income by households headed by people ages 25 to 29, 35 to 39, and 45 to 49 in the first year of each of those president’s terms. Since no president should be held responsible for the economy’s performance in his first year in office, we tracked the income gains of each age cohort from year two of each presidency through year one of his successor’s term.

Using this framework, it’s clear that most American households made more income progress under Obama than households of comparable ages under George W. Bush or his father, George H.W. Bush. (See Table 2, below.) Moreover, the income gains of 2013 through 2015, like the job growth of the same years, suggest that the U.S. economy is still capable of producing a robust expansion, at least for a few years. The data show, in Table 2 below, that incomes grew at a faster annual rate over the last three years than they did on average over the eight years of Reagan’s presidency for all three age cohorts, and faster than they did on average over the eight years of Clinton’s presidency for two of the three age cohorts.

Table 2. Average Annual Median Income Gains by Households Headed by People Ages 25 to 29, 35 to 39 and 45 to 49 as They Age through Each Presidency

Of course, it’s not truly a fair comparison politically, since Clinton and Reagan delivered strong income gains over their entire terms, while Obama has done so for only three years. But especially after the meager income progress of the 2002–2007 expansion, the data show that the U.S. economy can still deliver robust income growth for almost everyone.

So, the challenge facing the next president is to sustain this recent income progress, in large part by reversing our recent record of faltering productivity.